3/13/2014
Dolia Estevez

Pay Slash To Citigroup's Top Mexican Executive Called "Humiliating"

It’s been a tough couple of weeks for the top brass at Citigroup’s Mexican arm, with major investigations developing both in Mexico and the U.S. that have already resulted in questions about the bank’s risk management and a salary slash to Citi’s Mexico head. In a regulatory filing with the U.S. Securities and Exchange Commission on Wednesday, Citigroup said that its Mexico chairman, Manuel Medina Mora, received a 14% pay cut for 2013. Medina Mora is accountable for missteps last year at Banamex USA, the U.S. unit of Citigroup’s Banamex, which sparked regulatory sanctions, the filing said, according to The Wall Street Journal. His salary was cut from $11 million to $9.5 million. A spokesperson for Banamex said Medina Mora had nothing to add.

Medina Mora remains the third-highest-paid executive at the company, behind Citi’s Chief Executive Officer Michael Corbat ( who is paid $17.6 million) and James Forese, its investment banking chief (his pay: $17.5 million). In the past Medina Mora had been mentioned as a potential replacement for Corbat.

“It’s a humiliation, an outrage that perhaps would have led anyone else to resign,” opined business columnist Enrique Galván Ochoa in Mexico’s dailyLa Jornada. “Medina Mora has made extraordinary efforts to be accepted in Wall Street’s corporate world. While he sent cart-loads of dollars from Banamex to Citibank he was treated wonderfully, but in the first year that he generated losses he received a humiliating smack.” Banamex, considered Citi’s crown jewel, accounts for 13% of the bank’s annual revenues.

Medina Mora, 63, a cousin of Eduardo Medina Mora, Mexico’s Ambassador in Washington, is the only Mexican national know to have reached the highest echelons of Wall Street’s exclusive corporate world. In 2013, he was named Co-President of Citigroup. Citi’s CEO Corbat said that Medina Mora “exemplifies the best of Citi.” Medina Mora oversees global consumer banking and Citi’s Mexican subsidiaries Banamex and Banamex USA.

Medina Mora’s pay cut comes in the midst of a growing fraud scandal in Mexico around Banamex and a criminal investigation of Banamex USA. Citi revealed last week that it received subpoenas from a grand jury in Massachusetts concerning compliance with the Bank Secrecy Act and federal anti-money-laundering rules in its Banamex USA units in California. Citigroup said it is cooperating with U.S. authorities.

In a separate development, on February 28, Citigroup revealed that it had recently uncovered fraud in its Mexican unit, forcing the bank to readjust its 2013 earnings. The bank reported that as much as $400 million was misappropriated in fraud centered on the Mexican oil services company, Oceanografía. The Mexican government has taken control of Oceanografía’s assets. The alleged fraudulent scheme, which apparently went on for a decade, consisted of Banamex advancing short-term credit to Oceanografía for services to Pemex, Mexico’s state oil monopoly. Pemex would then pay back Banamex, after verifying invoices provided by Oceanografía. A significant amount of the invoices, however, were falsified to represent that Pemex had approved them. The accounts receivable program exceeded $535 million and an internal review determined that around $400 million were phony. Medina Mora is not known to be connected to Oceanografía’s alleged fraud. Pemex said Oceanografía’s irregularities were “an isolated case”.

But much before Citi’s fraud accusations, Oceanografía was known among emerging market investors as a company with good political connection, but financially toxic. In 2009, Fitch warned of Oceanografía’s high leverage and poor cash flow generation. The question that many are asking now is why Citibank dealt with Oceanografía to start with.

The two investigations –one involving an alleged fraud and the other related to money-laundering compliance– are apparently not related. “But together they show the perils of building a large banking business in and around a country that has wrestled with drug trafficking and corruption,” observed The New York Times.

Citi has long been the Mexican elite’s favorite bank, and this is not the first time it has run into trouble. In 1999, Citi was scolded by the U.S. Senate in following revelations that its VIP unit was luring well-connected Mexicans into depositing millions of ill-gotten dollars into their coffers. One of Citi’s favorite Mexican clients at the time was Raúl Salinas de Gortari, who was widely seen as symbol of corruption during the administration of his brother, former President Carlos Salinas de Gortari. In 2001, Citigroup bought Banamex for $12.5 billion, promising to turn it into a model of global banking.

http://www.forbes.com/sites/doliaestevez/2014/03/13/pay-slash-to-citigroups-top-mexican-executive-called-humiliating/